Date post: | 03-Jan-2016 |
Category: |
Documents |
Upload: | alyson-riley |
View: | 216 times |
Download: | 1 times |
Business-level strategy address the question of how a firm will compete in a specific industry
Developing business-level strategies requires not being mesmerized by all the nuanced strategies of firms in an industry
How can executives cut through the mess?Generic Strategies-a general way of positioning
a firm within an industryBest-known generic strategies developed by
Michael Porter of Harvard Business School
Business-Level Strategy
Two competitive dimensionsCompetitive advantage
Involves whether a firm stresses lower costs or uniqueness
Scope of OperationDetermines whether a firm appeals to a general
audience or a focused subset of consumers
Four (4) traditional generic strategiesCost leadershipDifferentiationFocused (niche) cost leadershipFocused (niche) differentiation
Generic Strategies
In addition to the four (4) main generic strategies, two sub-strategies existBest-Cost Strategy“Stuck-in-the-middle” Strategy
Different generic strategies offer different value propositions to customers
They also have different value chain configurations
Generic Strategies
Cost leadership firms compete based on price and aim for a broad target marketSell goods for low pricesTarget general consumers
Emphasize efficiency; spend little on advertising, market research, or R&D
Often rely on economies of scaleCost of offering goods decreases as a firm is
able to sell more items; expenses distributed across a greater number of items
Ex.-Wal-Mart, Payless Shoe Source, etc.
Cost Leadership
AdvantagesLow-cost providers better able to withstand
price warsDiscourages new entrantsAdvantage enhanced by high market share
DisadvantagesPeople perceive products and services as low-
qualityHigh volume necessary because low profit
marginsNeed to focus on low cost blinds firms to subtle
environmental trendsEmphasis on efficiency makes it difficult to
change quickly when needed
Cost Leadership
Differentiators compete based on uniqueness and aim at a broad target market
Attempt to convince customers to pay higher prices by providing unique and desirable features
Emphasize that consumers “get what they pay for”
Firms must communicate to consumers why they should pay higher prices—advertising!
Ex.-Nike, FedEx, Ralph Lauren, etc.
Differentiation
AdvantagesStrong margins = firms need less customers to
make a profitEnduring differentiator firms create strong
brand loyalty—less price sensitiveDifficult for new entrants to compete with
brand loyaltyDisadvantages
Customers may not be willing to pay higher prices
Customers may prefer a cheaper alternativeCompetitors may be able to imitate features
such that they are not sufficiently unique
Differentiation
A focused cost leadership strategy entails competing based on price to target a narrow customer market
Not necessarily the lowest price in the industry; it charges low prices relative to other firms that compete within the target market
In other cases, the target market is defined by the sales channel used to reach customersUnique product distribution/retail
Focused Cost Leadership
A focused differentiation strategy requires offering unique features that fulfill the demands of a narrow market
Similar to focused cost leadership strategy, focused differentiation sometimes focus on a particular sales channelOthers target particular demographic groups
Ex.-Whole Foods Market, Ferrari, etc.
Focused Differentiation
AdvantagesHigher prices can be chargedFirms can develop tremendous expertise in
their specific areaDisadvantages
Likely limited demandFocused area may be taken over by other firmsOther firms may provide narrower focus
Focused Strategies: Advantages & Disadvantages
Firms pursuing best-cost strategies charge relatively low prices AND offer substantial differentiation
For firms that want to have their cake and eat it too!
Very difficult to executeSuccessful implementation can lead to a
strong competitive advantageMay face attacks from many different
directionsBest-cost strategies can be easier to achieve
if a firm can lower their overhead/fixed costsEx.- Southwest Airlines, Target, Ikea, etc.
Best-Cost Strategy
Some firms are unable to develop any specific generic strategy
These firms become “stuck in the middle”Non-unique products at higher-than-
warranted pricesFirms fail when they try to please all
consumersFirms that are stuck in the middle are often
put their as a result of being out maneuvered by competitors
Ex.-Circuit City, Kmart, Blockbuster, Arby’s, etc.
Stuck in the Middle